Valeant goes hostile with $5.70 billion offer for Cephalon

Canada's Valeant Pharmaceuticals International has made an audacious $5.70 billion bid to buy Cephalon of the USA.

Under the terms of the unsolicited offer, Valeant is bidding $73.00 per share in cash, which represents a premium of approximately 29% over Cephalon's 30-day trading average. The Mississauga, Ontario-based group says it prefers "a consensual process" and has made "several private approaches" but "has been disappointed by Cephalon's unwillingness to engage in discussions in a timely manner".

Funding in place

As such, Valeant is taking the hostile route and plans to replace Cephalon's board with its own nominees. The bid would be funded entirely with debt and the company says that Goldman Sachs has provided "a highly confident letter for the full amount of the financing".

Valeant chief executive Michael Pearson said "We have taken a close look at Cephalon's business and believe we put forward a very compelling offer". He added that "we are also committed to trying to find additional value if we are allowed to conduct due diligence".

The Canadian firm's boss then claimed that as "Cephalon's management continues to pursue strategies that in our view reduce the value of a merged entity, we have decided to make our proposal public". The US company had just announced that it will pay $163 million for the shares it does not already own in Australian haematology specialist ChemGenex Pharmaceuticals and a week ago, it agreed to buy cancer specialist Gemin X Pharmaceuticals for $225 million in cash, plus up to $300 million more in milestones.

Valeant not interested in drawn-out negotiation

Mr Pearson concluded by saying that "we intend to be disciplined on price" and "if our offer does not have the requisite support of Cephalon's stockholders, we will focus our attention on other opportunities to invest our capital". However, he later added that the bid could be upped after due diligence.

The response from Cephalon has been a reasonably positive one. The board says it will consider the unsolicited proposal and respond by the middle of next week. In a letter to Mr Pearson, chief executive Kevin Buchi said "your timing was propitious, since my management team was meeting last week to commence our long range planning process".

Alternative offer

He notes that Valeant has also made an alternative offer, namely to purchase Cephalon's non-oncology related assets for $2.8 billion, but says the deadlines set by Valeant are "unfeasible". He also pointed out that yesterday, "our financial advisors reached out to yours" for futher clarification of the bids.

After saying "we appreciate your interest in Cephalon", Mr Buchi noted that "we are carrying out a strategy that has been carefully planned with our board of directors". The recently-announced acquisitions "are the result of many months of careful planning and negotiation", he added.